Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
BHP primed for earnings storm
Australia’s largest listed company recently delivered a record full-year dividend of $4.63 per share for FY22 on the back of buoyant commodity prices and favourable exchange rate movements.
BHP announced a final dividend of $2.51 in addition to the previously paid interim dividend of $2.08. This is on top of the dividend paid when BHP merged its petroleum assets with Woodside Energy in June. In total, the company returned $36 billion to shareholders in FY22.
Underling earnings before interest, tax, depreciation and amortisation (EBITDA) increased 15.7 per cent to US$40.6 billion. Much of the increase is attributed to a three-fold increase in coal prices. Subsequently, EBITDA from the coal division increased from US$288 million to US$9.5 billion.
Higher costs were a common theme across BHP’s assets, with unit costs up 13 per cent. Inflation pressures including elevated diesel and electric prices impacted earnings by US$1.5 billion, in addition to impacts related to COVID-19 of another US$1.5 billion.
BHP expects to ramp up capital and exploration spending to US$10 billion over the medium term to support growth projects across its commodity stable including the expansion of Western Areas Iron Ore and the Jansen Stage 1 potash project.
As a result of the bumper FY22, the miner is cashed up and ready to add to its portfolio. It lobbed an $8.3 billion offer for OZ Minerals recently, which was subsequently knocked back.
Looking forward, the outlook is less rosy. Growth is slowing across key regions and Europe’s energy crisis adds an additional source of concern. With demand expected to recede, this will likely entail lower commodity prices. Positively, demand from China is expected to be robust, as the government accelerates stimulus.
The marginal cost of production is expected to remain materially higher than pre-pandemic levels, but this also implies commodity prices should remain higher than in prior cycles. While the environment will likely get more difficult, low-cost operators like BHP are well positioned to weather any storm.
